Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

(10) Income Taxes

The Company has incurred losses since inception. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

Significant components of the Company’s deferred tax assets for federal income taxes consisted of the following (in thousands):

	December 31,
	2021		2020
Deferred tax assets
Net operating loss carryforwards	$	47,737	$	39,937
Research and development credits		623		747
Depreciation and amortization		(89)		239
Accrued expenses and other		1,356		611
Inventory reserve		171		205
Gross deferred tax asset		49,798		41,739
Valuation allowance		(49,798)		(41,739)
Net deferred tax asset	$	—	$	—

The Company does not have unrecognized tax benefits as of December 31, 2021 and 2020. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company’s net operating loss (“NOL”) carryforwards for federal and state income tax purposes consisted of the following (in thousands):

	December 31,
	2021		2020
NOL carryforwards
Federal	$	181,443	$	150,642
State		151,488		128,912

The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes. The Company recorded a valuation allowance on the deferred tax assets as of December 31, 2021 and 2020 because of the uncertainty of their realization. The valuation allowance increased by $8.1 million and $6.9 million for the years ended December 31, 2021 and 2020, respectively, mainly due to losses incurred.

Utilization of the net operating losses and general business tax credits carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if changes in ownership of the company have occurred previously or occur in the future. Ownership changes may limit the amount of net operating losses and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of 5% shareholders in the stock of a corporation by more than 50 percentage points over a three-year period. If the Company experiences a Section 382 ownership change, the tax benefits related to the NOL carryforwards may be further limited or lost. The Company has not performed an analysis under Section 382 and cannot predict or otherwise determine whether there would be any limitation to the amount of net operating losses and general business tax credits carryforwards that can be utilized.

A reconciliation of income tax benefit at the statutory federal income tax rate and as reflected in the consolidated financial statements is as follows:

	Year ended December 31,
	2021		2020		2019
Rate reconciliation
Federal tax benefit at statutory rate	(21.0)	%	(21.0)	%	(21.0)	%
State rate, net of federal benefit	(3.5)		(4.2)		(2.9)
Permanent differences	0.2		0.6		0.4
Research and development	0.4		0.7		(0.7)
Change in valuation allowance	24.2		24.0		24.2
Other	(0.3)		(0.1)		—
Total tax provision	—	%	—	%	—	%

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and the United Kingdom. Tax years 2017 and forward remain open for examination for federal tax purposes and tax years 2017 and forward remain open for examination for the Company’s more significant state tax jurisdictions. Carryforward attributes from prior years may be adjusted upon examination by taxing authorities if used in an open period.

Many governments have enacted or are currently contemplating economic stimulus and financial aid measures. Many of these measures include deferring the due dates for tax payments, including both income tax and other taxes. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States to address the economic impacts of the COVID-19 pandemic. The CARES Act includes corporate income tax, payroll tax, and other provisions. While the Company may receive financial, tax, or other benefits under the bill, this

legislation did not impact the Company during the year ended December 31, 2020. During the year ended December 31, 2021, the Company claimed an employee retention payroll tax credit of $0.5 million for certain employment taxes.